On average, women pay more for mortgages than men do, but those mortgages held by women-only borrowers tend to perform better than those held by men, according to one analysis.
In a research report titled “Women are Better Than Men at Paying Their Mortgages,” released by the Urban Institute's Housing Finance Policy Center on Wednesday, authors Laurie Goodman, Jun Zhu, and Bing Bai state that the two reasons why mortgages cost more for female borrowers are that women (particularly minority women) experience higher rates of subprime lending than male borrowers, and also that women tend to have weaker credit profiles.
Weaker credit profiles have not translated to weaker mortgage performance, however, according to the research.
“In fact, when credit characteristics are held constant, women actually perform better than men,” the authors state. “Nonetheless, since pricing is tied to credit characteristics not performance, women actually pay more relative to their actual risk than do men.”
The irony of these findings is that despite mortgages performing better, women are more likely than men to be denied for a mortgage loan, according to the report.
“Holding all credit characteristics constant, female-only borrowers default less than their male counterparts,” the authors state. “This finding is true for white, African American, and Hispanic women. The bottom line: single women with mortgages are doing a better job of paying their mortgages than their credit characteristics predict.”
The authors believe that single women are paying too much for mortgages, since the price they pay for mortgages is based on credit characteristics. The overpayment does not translate to a substantial amount (less than $150 per loan taken out by a female-only borrower), however; the important issue, the authors state, is that the dimensions lenders rely on to assess credit risk do not adequately capture all the differences. Women are still more likely to be turned down for a mortgage loan than men despite the research that indicates mortgages owned by single women perform better than those owned by men, according to the report.
“Given that more than one-third of single-women borrowers are minorities and almost half of them live in low-income communities, we need to develop more robust and accurate measures of risk to ensure that we aren’t denying mortgages to women who are fully able to make good on their payments,” the authors state.
Click here to view the entire report.